Chapter 7 - Decision Making and
Thursday, March 7, 2013
• Decision making is the conscious process of making choices among
alternatives with the intention of moving toward some desired state of affairs.
RATIONAL CHOICE PARADIGM OF DECISION MAKING
• rational choice paradigm, which has dominated decision making philosophy
in Western societies for most of written history
• Subjective expected utility is the probability (expectation) of satisfaction
(utility) for each specific alternative in a decision.
• Rational choice assumes that decision makers naturally select the alternative
that offers the greatest level of happiness (i.e., maximization), such as highest
returns for stockholders and highest satisfaction for customers, employees,
government, and other stakeholders.
• The first step is to identify the problem or recognize an opportunity. A
problem is a deviation between the current and the desired situation—the gap
between “what is” and “what ought to be.” This deviation is a symptom of
more fundamental causes that need to be corrected.6 An opportunity is a
deviation between current expectations and a potentially better situation that
was not previously expected.
• The second step involves deciding how to decide; that is, what processes to
apply to make the decision.
• One issue is whether the decision maker has enough information or needs to
involve others in the process.
• Another issue is whether the decision is programmed or nonprogrammed.
Programmed decisions follow standard operating procedures; they have been
resolved in the past, so the optimal solution has already been identified and
• In contrast, nonprogrammed decisions require all steps in the decision model
because the problems are new, complex, or ill-defined.
• The third step is to discover and develop a list of possible solutions.
• The rational choice paradigm seems so logical, yet it is impossible to apply in
reality. One reason is that the model assumes people are efficient and logical
information processing machines.
• The second reason why the rational model doesn't fit reality is that it focuses
on logical thinking and completely ignores the fact that emotions also influence
—perhaps even dominate—the decision making process.
IDENTIFYING PROBLEMS AND OPPORTUNITIES
• Stakeholder Framing Employees, suppliers, customers, and other
stakeholders have vested interests when bringing good or bad news to
corporate decision makers. Often unwittingly, they filter information to amplify
or suppress the seriousness of the situation. By framing the situation,
stakeholders throw a spotlight on specific causes of the symptoms and away
from other possible causes. Stakeholders also frame problems in ways that raise the value of resources they can provide to help the organization solve
• Mental Models Even if stakeholders don't frame information, our mind
creates its own framing through preconceived mental models. Mental models
are visual or relational images in our mind of the external world; they fill in
information that we don't immediately see, which helps us understand and
navigate in our surrounding environment.
• Decisive Leadership According to various studies, employees believe that
decisiveness is a characteristic of effective leaders. Being decisive includes
quickly forming an opinion of whether an event signals a problem or
• Solution-Focused Problems Decision makers have a tendency to define
problems as veiled solutions. For instance, someone might say: “The problem
is that we need more control over our suppliers.” This statement doesn't
describe the problem; it is really a slightly rephrased presentation of a solution
to an ill-defined problem. Decision makers engage in solution-focused problem
identification because it provides comforting closure to the otherwise
ambiguous and uncertain nature of problems.
• Perceptual Defence People sometimes block out bad news as a coping
mechanism. Their brain refuses to see information that threatens their self-
concept. This phenomenon is not true for everyone. Some people inherently
overlook negative information, whereas others are more aware of it.
• but one way to improve the process is by becoming aware of the five
problem identification biases just described. For example, by recognizing that
mental models restrict a person's perspective of the world,
decision makers are more motivated to consider other perspectives of reality.
Along with increasing their awareness of problem identification flaws, leaders
require considerable willpower to resist the temptation of looking decisive
when a more thoughtful examination of the situation should occur.
• A third way to improve problem identification is for leaders to create a norm
of “divine discontent.”
• employees can minimize problem identification errors by discussing the
situation with colleagues.
SEARCHING FOR, EVALUATING, AND CHOOSING ALTERNATIVES
• The rational choice paradigm assumes that organizational goals are clear and
• Unfortunately, organizational goals are often ambiguous or in conflict with
• Consequently, as a new alternative comes along, it is immediately compared
to an implicit favourite—an alternative that the decision maker prefers and
that is used as a comparison with other choices. When choosing a new
computer system, for example, people typically have an implicit favourite
brand or model in their heads that they use to compare with the others. This
sequential process of comparing alternatives with an implicit favourite occurs
even when decision makers aren't consciously aware that they are doing this
• Biased Decision Heuristics
Three of the most widely studied heuristic biases are anchoring and
adjustment, availability, and representativeness: • Anchoring and adjustment heuristic.
• Availability heuristic.
• Representativeness heuristic
Another form of the representativeness heuristic, known
as the clustering illusion, is the tendency to see patterns from a
small sample of events when those events are, in fact, random
• One of the main assumptions of the rational choice paradigm is that people
want to—and are able to—choose the alternative with the highest payoff (i.e.,
the highest “utility” in subjective expected utility).
• People satisfice when they select the first alternative that exceeds a standard
of acceptance for their needs and preferences.
• This necessarily calls for a satisficing decision rule—choose the first
alternative that is “good enough.”
• A second reason why people engage in satisficing rather than maximization is
that they lack the capacity and motivation to process the huge volume of
information required to identify the best choice.
• Emotions Form Early Preferences The emotional marker process
described in previous chapters determines our preferences for each alternative
before we consciously think about those alternatives. Ultimately, emotions,
not rational logic, energize us to make the preferred choice. In fact, people
with damaged emotional brain centres have difficulty making choices.
• Emotions Change the Decision Evaluation Process A considerable
body of literature indicates that moods and specific emotions influence the
process of evaluating alternatives. Overall, emotions shape how we evaluate
information, not just which choice we select.
• Emotions Serve as Information When We Evaluate Alternatives The
third way that emotions influence the evaluation of alternatives is through a
process called “emotions as information.” Most emotional experiences remain
below the level of conscious awareness, but people actively try to be more
sensitive to these subtle emotions when making a decision.
• Intuition is both an emotional experience and a rapid nonconscious analytic
• These signals warn us of impending danger, such as a dangerous mine wall,
or motivate us to take advantage of an opportunity
• All gut feelings are emotional signals, but not all emotional signals are
• whether the emotions we experience in a situation represent intuition or not
depends largely on our level of experience in that situation.
• action scripting is a form of programmed decision making. Action scripts are
generic, so we need to consciously adapt them to the specific situation.
• By systematically assessing alternatives against relevant factors, decision
makers minimize the implicit favourite and satisficing problems that occur
when they rely on general subjective judgments. This recommendation does
not suggest that we ignore intuition; rather, it suggests that we use it in
combination with careful analysis of relevant information.
• A second piece of advice is to remember that decisions are influenced by
both rational and emotional processes.
IMPLEMENTING DECISIONS • translating decisions into action—is one of the most important and
challenging tasks of leaders.
EVALUATING DECISION OUTCOMES
• One problem is confirmation bias (also known as post-decisional justification
in the context of decision evaluation), which is the “unwitting selectivity in the
acquisition and use of evidence.”When evaluating decisions, people with
confirmation bias ignore or downplay the negative outcomes of the selected
alternative and overemphasize its positive outcomes.
• Unfortunately, it also inflates the decision maker's initial evaluation of the
decision, so reality often comes as a painful shock when objective feedback is